Wall Street’s Bail-out Bet: Market Reactions to House Price Releases in the Presence of Bail-out Expectations

Wall Street’s bailout bet: Market reactions to house price releases in the presence of bailout expectations

Journal of Banking & Finance ◽

10.1016/j.jbankfin.2013.01.041 ◽

2013 ◽

Vol 37 (12) ◽

pp. 5147-5158 ◽

Cited By ~ 2

Author(s):

Gunter Löffler ◽

Peter N Posch

Keyword(s):

House Price ◽

Market Reactions

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Zur juristischen Begründung des ‚Rettungsschirms‘

Review of Economics ◽

10.1515/roe-2010-0201 ◽

2010 ◽

Vol 61 (2) ◽

Author(s):

Dirk Meyer

Keyword(s):

Market Failure ◽

The European Union ◽

Member States ◽

Market Reactions ◽

Eu Member States ◽

Growth Pact ◽

Financial Burdens ◽

The Stability ◽

System Errors ◽

Bail Out

SummaryThe financial and guarantee aids within the European Financial Stabilisation Mechanism suspend the Stability and Growth Pact as the basis of the European Economic and Monetary Union. The actual ‘suspension’ from the ‘no bail-out’ restriction (Art. 125 TFEU) and the prohibition of funding national debts (Art. 123 TFEU) transfers risks and financial burdens from deeply indebted states to solvent EU member states. This is the beginning of an unauthorized ‘transfer union’.This analysis does not display any evidence of market failure with respect to a potential domino effect for other EU member states. In addition, a destabilizing speculation cannot be identified. The case ‘Greece’ is rather a special case which has become a common model for other member states, caused by the Council of the European Union and the aid packages. Speculations build a part of the observable market reactions apart from pure hedging, but they simply indicate political system errors.The interventions by the European Central Bank do not lead to functioning markets. These interventions rather lead to yield structures that are inadequate in terms of risks and scarcity. Therefore they will cause a misallocation of financial resources with high economic costs.

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